STJ ST. Jude Medical, Inc.

Recently, Medtronic (MDT) launched two products to add to the Kyphon Balloon Kyphoplasty procedure (BKP), which is used for treating vertebral compression fractures (VCFs). The products are Kyphon Xpander II Inflatable Bone Tamp (IBT) and the Kyphon Inflation Syringe - the Kyphon Xpander II IBT System. The Kyphon Xpander II IBT System has been in use since November 2010.

During the last reported quarter, revenues from BKP declined 9% (5% decline in the third quarter) and were flat on a sequential basis. In February 2011, results from three BKP studies were published that demonstrated the benefits of this technology

Medtronic is confident of recording higher revenues from BKP in the forthcoming period based on positive coverage decision issued by Noridian Administrative Services in May. Moreover, data presented over the last few months demonstrate positive clinical evidence for the treatment.

VCFs are the most common osteoporotic problem and it is estimated that about 900,000 such spinal fractures occur in US every year. It has been observed that these fractures stand the risk of additional health problems as well as increase the risk of death

During the reported quarter, Medtronic’s second biggest segment, Spinal, generated $875 million in sales compared to $880 million in the year-ago period, down 1% (down 2% at CER). Revenues from Core Spinal and Biologics were $648 million (down 2% year over year) and $227 million (up 5%). Core Spinal includes Core metal constructs, Interspinous Process Decompressions Systems (IPDs) and BKP.

The fiscal 2011 has been one of the most challenging years for Medtronic based on macroeconomic downturn, decreased utilization and increased payer pushback. Although the situation is improving gradually, the two biggest segments at Medtronic – CRDM and Spinal continue to remain under pressure.

Meanwhile, Medtronic is increasing its focus on emerging markets and emerging therapies and expects these to be major growth drivers going ahead. The company also faces tough competition from players such as Boston Scientific Corporation (BSX) and St. Jude Medical (STJ).

We are currently Neutral on the stock, which also corresponds to the Zacks #3 Rank (Hold) in the short-term.

 
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